Financial Statements for 2017-2018
Statement of Management Responsibility Including Internal Control Over Financial Reporting
Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2018 and all information contained in these statements rests with the management of the Office of the Communications Security Establishment Commissioner (OCSEC). These financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.
Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of OCSEC's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in OCSEC's Departmental Results Report is consistent with these financial statements.
Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.
Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout OCSEC; and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.
The system of ICFR is designed to mitigate risks to a reasonable level based on an-ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.
OCSEC is subject to periodic Core Control Audits performed by the Office of the Comptroller General and uses the results of such audits to comply with the Treasury Board Policy on Financial Management.
A Core Control Audit performed by the Office of the Comptroller General of Canada for fiscal year 2014–15 was completed in July 2016. The Audit Report and the related Management Action (audits) are posted on the departmental web site.
The financial statements of OCSEC have not been audited.
Originals signed by:
The Honourable Jean-Pierre Plouffe, CD
Commissioner
Gérard Normand
Acting/Chief Financial Officer
Ottawa, Canada
Date signed: October 9, 2018
Statement of Financial Position (Unaudited)
As at March 31 (in dollars)
| 2018 | 2017 | |
|---|---|---|
| Liabilities | ||
| Accounts payable and accrued liabilities (note 4) | $251,645 | $167,868 |
| Vacation pay and compensatory leave | 51,084 | 28,760 |
| Total liabilities | 302,729 | 196,628 |
| Financial assets | ||
| Due from the Consolidated Revenue Fund | 195,439 | 149,020 |
| Accounts receivable and advances (note 6) | 50,395 | 26,681 |
| Total financial assets | 245,834 | 175,701 |
| Departmental net debt | 56,895 | 20,927 |
| Non-financial assets | ||
| Prepaid expenses | 3,903 | 3,580 |
| Tangible capital assets (note 7) | 509,507 | 620,740 |
| Total non-financial assets | 513,410 | 624,320 |
| Departmental net financial position | $456,515 | $603,393 |
Contractual obligations (note 8)
The accompanying notes form an integral part of these financial statements.
Statement of Operations and Departmental Net Financial Position (Unaudited)
For the year ended March 31 (in dollars)
| 2018 Planned Results | 2018 | 2017 | |
|---|---|---|---|
| Expenses | |||
| Review Program | $1,713,912 | $1,476,390 | $1,427,130 |
| Internal Services | 583,161 | 692,861 | 736,096 |
| Net cost of operations before government funding | $2,297,073 | 2,169,251 | 2,163,226 |
| Government funding | |||
| Net cash provided by Government | 1,876,744 | 1,954,259 | |
| Services provided without charge by other government departments (note 9) | 99,210 | 102,635 | |
| Change in due from the Consolidated Revenue Fund | 46,419 | 8,193 | |
| Net cost of operations after government funding | 146,878 | 98,139 | |
| Departmental net financial position - Beginning of year | 603,393 | 701,532 | |
| Departmental net financial position - End of year | $456,515 | $603,393 | |
Segmented information (note 10)
The accompanying notes form an integral part of these financial statements.
Statement of Change in departmental Net Debt (Unaudited)
For the year ended March 31 (in dollars)
| 2018 | 2017 | |
|---|---|---|
| Net cost of operations after government funding | $146,878 | $98,139 |
| Change due to tangible capital assets | ||
| Acquisition of tangible capital assets | 16,430 | 67,363 |
| Amortization of tangible capital assets | (127,663) | (130,058) |
| Total change due to tangible capital assets | (111,233) | (62,695) |
| Change due to prepaid expenses | 323 | (338) |
| Net increase in departmental net debt | 35,968 | 35,106 |
| Departmental net debt - Beginning of year | 20,927 | (14,179) |
| Departmental net debt - End of year | $56,895 | $20,927 |
The accompanying notes form an integral part of these financial statements.
Statement of Cash Flows (Unaudited)
For the Year ended March 31 (in dollars)
| 2018 | 2017 | |
|---|---|---|
| Operating Activities | ||
| Net cost of operations before government funding | $2,169,251 | $2,163,226 |
| Non-cash items: | ||
| Services provided without charge by other government departments (note 9) | (99,210) | (102,635) |
| Amortization of tangible capital assets | (127,663) | (130,058) |
| Variations in Statement of Financial Position | ||
| Increase (decrease) in accounts receivable and advances | 23,714 | (22,385) |
| Increase (decrease) in prepaid expenses | 323 | (338) |
| (Increase) in accounts payable and accrued liabilities | (83,777) | (23,130) |
| (Increase) decrease in vacation pay and compensatory leave | (22,324) | 2,216 |
| Cash used in operating activities | 1,860,314 | 1,886,896 |
| Capital Investing Activities | ||
| Acquisitions of tangible capital assets | 16,430 | 67,363 |
| Cash used in capital investing activities | 16,430 | 67,363 |
| Net cash provided by Government of Canada | $1,876,744 | $1,954,259 |
The accompanying notes form an integral part of these financial statements.
Notes to the Financial Statements (Unaudited)
For the year ended March 31, 2018
1. Authority and Objectives
The Office of the Communications Security Establishment Commissioner was created on June 19, 1996. It was established as a separate agency of government in April 2008. The mandate of the Commissioner is set out in the National Defence Act (NDA):
- to review the activities of the Communications Security Establishment (CSE) to determine they comply with the law;
- to undertake any investigation that the Commissioner deems necessary in response to a written complaint; and
- to inform the Minister of National Defence and the Attorney General of Canada of any CSE activity that the Commissioner believes may not be in compliance with the law.
In addition, under the Security of Information Act, the Commissioner is mandated to receive information from persons who are permanently bound to secrecy if they believe it is in the public interest to release special operational information of CSE.
There are two programs that support the Commissioner in carrying out his mandate. The review program entails the reviews and studies performed by OCSEC. The internal services program entails the corporate services in place that support the review program.
2. Summary of Significant Accounting Policies
These financial statements have been prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.
Significant accounting policies are as follows:
(a) Parliamentary Authorities
Parliamentary authorities – OCSEC is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to OCSEC do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the "Expenses" and "Revenue" sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-oriented Statement of Operations included in the 2017–18 Departmental Plan. Planned results are not presented in the "Government funding and transfers" section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2017–18 Departmental Plan.
(b) Net Cash Provided by Government
OCSEC operates within the Consolidated Revenue Fund (CRF) which is administered by the Receiver General for Canada. All cash received by OCSEC is deposited to the CRF and all cash disbursements made by OCSEC are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments and agencies of the Government.
(c) Due from (to) the Consolidated Revenue Fund
Amounts due to or from the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the OCSEC is entitled to draw from the CRF without further authorities to discharge its liabilities.
(d) Expenses
Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
Services provided without charge by another government department for employer contributions to the health and dental insurance plans are recorded as operating expenses at their estimated cost.
(e) Employee Future Benefits
-
Pension Benefits
Eligible employees participate in the Public Service Pension Plan, a multi-employer plan administered by the Government of Canada. The OCSEC's contributions to the Plan are charged to expenses in the year incurred and represent its total obligation to the Plan. The OCSEC's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.
-
Severance Benefits
The accumulation of severance benefits for voluntary departures ceased for applicable employee groups.
(f) Accounts Receivable and Advances
Accounts receivable are initially recorded at cost. When necessary, an allowance for valuation is recorded to reduce the carrying value of accounts receivable to amounts that approximate their net recoverable value.
(g) Non-financial Assets
The costs of acquiring land, buildings, equipment and other capital property are capitalized as tangible capital assets and, except for land, are amortized to expense over the estimated useful lives of the assets, as described in Note 7. All tangible capital assets and leasehold improvements having an initial cost of $3,000 or more are recorded at their acquisition cost. Tangible capital assets do not include immovable assets located on reserves as defined in the Indian Act, works of art, museum collection and Crown land to which no acquisition cost is attributable.
(h) Measurement Uncertainty
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets, liabilities and expenses reported in the financial statements and accompanying notes at March 31. The estimates are based on facts and circumstances, historical experience, general economic conditions and reflect the Government's best estimate of the related amount at the end of the reporting period. The most significant items where estimates are used are the liability for employee future benefits and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.
3. Parliamentary Authorities
OCSEC receives most of its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, OCSEC has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables.
a) Reconciliation of Net Cost of Operations to Current Year Authorities Used
| (in dollars) | ||
|---|---|---|
| 2018 | 2017 | |
| Net cost of operations before government funding | $2,169,251 | $2,163,226 |
| Adjustments for items affecting net cost of operations but not affecting authorities | ||
| Services provided without charge by other government departments | (99,210) | (102,635) |
| Amortization of tangible capital assets | (127,663) | (130,058) |
| Increase (decrease) in vacation pay and compensatory leave | (7,656) | 2,216 |
| Refunds of prior year's expenditures | 192 | - |
| Total items affecting net cost of operations but not affecting authorities | (234,337) | (230,477) |
| Adjustments for items not affecting net cost of operations but affecting authorities | ||
| Advances to employees | 15,394 | 4,604 |
| Increase (decrease) in prepaid expenses | 323 | (338) |
| Acquisition of tangible capital assets | 16,430 | 67,363 |
| Total for items not affecting net cost of operations but affecting authorities | 32,147 | 71,629 |
| Current year authorities used | $1,967,061 | $2,004,378 |
(b) Authorities Provided and Used (in dollars)
| Authorities provided | 2018 | 2017 |
|---|---|---|
| Vote 1 - Operating expenditures | $2,059,246 | $2,025,506 |
| Statutory amounts | 141,826 | 170,161 |
| Total authorities provided | 2,201,072 | 2,195,667 |
| Less: lapsed operating | (234,011) | (191,289) |
| Current year authorities used | $1,967,061 | $2,004,378 |
4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities are measured at cost, the majority of which are due within six months of year-end. The following table presents details of the OCSEC's accounts payable and accrued liabilities
| (in dollars) | ||
|---|---|---|
| 2018 | 2017 | |
| Accounts payable – Other government departments and agencies | $70,934 | $1,733 |
| Accounts payable - External suppliers | 63,580 | 65,428 |
| Total accounts payable | 134,514 | 67,161 |
| Accrued liabilities | 117,130 | 100,707 |
| Total accounts payable and accrued liabilities | $251,644 | $167,868 |
5. Employee Future Benefits
(a) Pension benefits
The OCSEC's employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Quebec Pension Plans benefits and they are indexed to inflation.
Both the employees and the OCSEC contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Canada's Economic Action Plan 2012, employee contributors have been divided into two groups – Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.
The 2017–2018 expense amounts to $97,549 ($118,551 in 2016-2017). For Group 1 members, the expense represents approximately 1.01 times (1.12 times in 2016–17) the employee contributions and, for Group 2 members, approximately 1.00 times (1.08 times in 2016–17) the employee contributions.
The OCSEC's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the Financial Statements of the Government of Canada, as the Plan's sponsor.
(b) Severance benefits
Severance benefits provided to OCSEC's employees were previously based on an employee's eligibility, years of service and salary at termination of employment. However, since 2011 the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. By March 31, 2017, all employees had opted for full payment of benefits and there is no liability.
6. Accounts Receivable and Advances
The following table presents details of accounts receivable and advances balances:
| (in dollars) | ||
|---|---|---|
| 2018 | 2017 | |
| Receivables from other government departments and agencies | $41,741 | $21,777 |
| Other advances | 8,354 | 4,604 |
| Petty cash advance | 300 | 300 |
| Total accounts receivable and advances | $50,395 | $26,681 |
7. Tangible Capital Assets
Amortization of tangible capital assets is done on a straight-line basis over the estimated over the estimated useful life of the asset as follows:
| Asset class | Amortization Period |
|---|---|
| Other equipment including furniture | 5 years |
| Informatics hardware | 3 years |
| Leasehold improvements | remaining term of the lease |
| Capital Asset Class | Cost | ||
|---|---|---|---|
| Opening Balance | Acquisitions | Closing Balance | |
| Other equipment including furniture | $189,253 | $16,430 | $205,683 |
| Informatics hardware | 106,705 | - | 106,705 |
| Leasehold improvements | 890,312 | - | 890,312 |
| Total | $1,186,270 | $16,430 | $1,202,700 |
| Accumulated Amortization | |||
|---|---|---|---|
| Opening Balance | Amortization | Closing Balance | |
| Other equipment including furniture | $105,900 | $29,339 | $135,239 |
| Informatics hardware | 82,006 | 10,101 | 92,107 |
| Leasehold improvements | 377,624 | 88,223 | 465,847 |
| Total | $565,530 | $127,663 | $693,193 |
| Net Book Value | ||
|---|---|---|
| 2018 | 2017 | |
| Other equipment including furniture | $70,444 | $83,353 |
| Informatics hardware | 14,598 | 24,699 |
| Leasehold improvements | 424,465 | 512,688 |
| Total | $509,507 | $620,740 |
8. Contractual Obligations
The nature of OCSEC's activities can result in some large multi-year contracts and obligations whereby OCSEC will be obligated to make future payments when the goods and services are received. The most significant commitments relate to occupancy instruments signed in June 2018 and running for 10 years for the rental of office space. The obligations related to the upcoming years include the following:
| 2018 (in dollars) | |
|---|---|
| 2019 | $293,943 |
| 2020 | 293,943 |
| 2021 | 293,943 |
| 2022 | 293,943 |
| 2023 and subsequent | 1,763,658 |
| Total future occupancy payments | $2,939,430 |
9. Related Party Transactions
OCSEC is related as a result of common ownership to all government departments, agencies and Crown Corporations. OCSEC enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, OCSEC received common services which were obtained without charge from other government departments and agencies as disclosed below.
(a) Common Services Provided Without Charge by Other Government Departments
During the year, OCSEC received services without charge from a common service organization related to the employer's contribution to the health and dental insurance plans. These services provided without charge have been recorded in OCSEC's Statement of Operations and Departmental Net Financial Position as follows:
| (in dollars) | ||
|---|---|---|
| 2018 | 2017 | |
| Employer's contribution to the health and dental insurance plans | $99,210 | $102,635 |
The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The cost of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada are not included in OCSEC's Statement of Operations and Departmental Net Financial Position.
(b) Other Transactions with Related Parties
| (in dollars) | ||
|---|---|---|
| 2018 | 2017 | |
| Expenses - other government departments and agencies: | $633,634 | $621,935 |
Expenses disclosed in (b) exclude common services provided without charge, which are already disclosed in (a). Accounts receivable and accounts payable to other government departments and agencies are already disclosed in Notes 6 and 4 respectively.
10. Segmented Information
Presentation by segment is based on the OCSEC's core responsibility. The presentation by segment is based on the same accounting policies as described in the summary of significant accounting policies in note 2. The following table presents the expenses incurred for the core responsibility, by major object of expense. The segment results for the period are as follows:
| (in dollars) | ||||
|---|---|---|---|---|
| Operating expenses | Review Program | Internal Services |
Total | |
| 2018 | 2017 | |||
| Salaries and employee benefits | $1,071,811 | $272,917 | $1,344,728 | $1,369,312 |
| Accommodation and other rentals | 239,883 | 81,790 | 321,673 | 318,919 |
| Professional and special services | 123,750 | 162,450 | 286,200 | 266,966 |
| Amortization of tangible capital assets | - | 127,663 | 127,663 | 130,058 |
| Communication, printing and publishing | 27,599 | 10,557 | 38,156 | 20,217 |
| Transportation and telecommunication | 13,347 | 12,441 | 25,788 | 27,718 |
| Office expenses and equipment | - | 25,043 | 25,043 | 30,036 |
| Net cost of operations before government funding | $1,476,390 | $692,861 | $2,169,251 | $2,163,226 |
11. Subsequent Events
Bill C-59, An Act respecting national security matters received First Reading in the House of Commons on June 20, 2017. Currently it is undergoing second reading in the Senate. Part 2 of the Act establishes the Intelligence Commissioner Act. Under the provisions of this Act, on the day the legislation comes into force, the office of the Intelligence Commissioner commences operations and the office of the CSE Commissioner ceases operations. Money appropriated for the office of the former Commissioner (Office of the CSE Commissioner) that is unexpended is deemed to be an amount appropriated to the office of the Intelligence Commissioner.
12. Restatement of Comparative Information
Certain comparative figures have been reclassified to conform to the current year's presentation.
Annex to the Statement of Management Responsibility Including Internal Control over Financial Reporting for the year ended March 31, 2018
1. Introduction
In support of an effective system of internal control, OCSEC annually assesses the performance of its financial control framework to ensure procurement processes are in accordance with the direction set out by the central agencies payments for goods and services are made only when the goods or services are received or the conditions of contracts or other arrangements have been satisfied; and documentation supports financial decisions taken.
2. Assessment results during fiscal year 2014–2015
A core control audit performed by the Office of the Comptroller General for fiscal year 2014–2015 was completed in July 2016.
3. Assessment plan
The Audit Report and the related Management Action Plan are posted on the departmental web site. The action plan has been implemented. It is used as a guide for the annual assessments.
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